Oddly enough I agree with Keith Locke...

... when he said:

"However, it would be quite wrong to take from [the Green's population policy] that we are asking parents to have less kids,” Mr Locke says.

It should be fewer kids.

Unless of course they are going to be skinny ones.

The Long and the Short of It

Most of us are starting to get crisis fatigue (on top of which election fatigue is starting to set in, too). Everyday there seems to be a new story about a financial institution going under or some knee-jerk government reaction. Coming as this does just before important elections for little ol’ Aotearoa New Zealand, there is a real temptation to unhook the modem and go hide in some secluded backwater (you know, like Christchurch).

That said (being an economist, I always have a “but”), something I find fascinating about much of what is going on around us is the temporal aspect of it all. We seem to have a disconnect between what is “in our face” and the longer term outlook. The value of the mortgage backed securities is a case in point. No one wants to buy them but chances are they will have some (if not a lot) of value several years down the track, even after taking into account a proportion of constituent mortgages that default.

Similarly, the way we (well, financial institutions directly but the general populace have acquiesced in this) compensate the sellers of financial products is skewed toward the short-term. You sell the product and get the commissions. Big bonus. Several years down the track, after you have taken your golden handshake or jumped ship, the underlying turns toxic.

Of course, without having crystal balls it is a little petty to expect that we will be able to foresee all the bad stuff that will happen. But the thing is we don’t need to see it exactly. All we need to know is that something bad is going to happen. Things happen in cycles. Sometimes the cycles are elongated and sometimes they are shallow but they cycle. And if the cycle happens to be accentuated, well the drop is going to be case of “I get to see my lunch for a second time”. Why are we surprised that we are getting the payback for a) dodgy lending practises/housing policies, b) incentives for banks to put stuff off balance sheet, c) over-reliance on ratings agencies, d) a belief that the work of some executives is actually worth many millions of dollars? [How many so-called “hundred year events” have you experienced? Ok – they are not necessarily related but I’ve lived through six economic/financial crises of varying magnitudes and several “hundred year” weather patterns.]

Too many people believe they fully understand what is going on around them. They don’t. They have heuristics that are seemingly confirmed but they don’t actually understand. For some things that is ok. I get into a lift with only a rudimentary understanding of how the counterweight helps stop the thing plummeting 20 storeys down. But if I am signing up for a mortgage that has the potential to leave me homeless or even just take a massive chunk out of my disposable income in a couple of years, by closing my eyes and just signing I am abrogating my responsibilities. Worse still the grinning salesman who says “keep the pen” after I sign.

It seems that the vast majority of humanity does not want to look ahead. To paraphrase Douglas Adams, if we had foresight we may well have never come down from the trees. But all we need to know is that things will turn sour at some point in the future and then ask ourselves “How confident am I that my decisions today are going to stand me in good stead when the shit hits the fan?”

There is a wonderful comment in a Freakonomics post comparing the behaviour of mortgage lenders and pregnant teenagers – both profess to not knowing how it happened.

Why I Dislike Winston Peters, Reason #492

It was inevitable that NZF would again trot out the xenophobic rhetoric that so enamours Winston with the intellectually challenged.

Stuff:
"When times are tough internationally immigrants are attracted to New Zealand like moths to a neon light."

NZ Herald:
"He said immigration policy had to be "smarter" and added: "We must have a population policy - and one in which ordinary New Zealanders can have an input.
"It must be linked explicitly to labour market needs. No job - no immigrant."
Mr Peters said no one should be let into New Zealand unless they had a job and those seeking to join families in this country would have to be immediate family only."

Apart from the fact that it is already relatively hard for unskilled migrants without a job offer to come to NZ, I believe he is trying to say all those Somali taxi drivers with PhDs should not be allowed in...

The man makes me sick and I can only hope that enough peopple do not vote for either NZF or Labour so that he has no chance of getting back into parliament.

A Grey Swan?

I'm in the middle of reading "The Black Swan" by Nassim Nicholas Taleb.

I find his writing style a little tiresome after a while but the ideass in the book make for a must-read for anyone in finance and economics.

Although current events are not beyond the realm of probability - indeed, a lot of people foresaw the problems in some form or another - some of the ideas are really applicable. Hence the current "crisis" is a grey rather than a black swan.

been away from the blog

I had an extended holiday from the blog due to other commitments. Things are not much better time-wise but with the political silly season really upon us, along with some rather dubious economic decisions taking place around the globe, I feel the need to vent my spleen on occasion.

Oil - Speculators - Only for the weak minded

A lot has been said in the medi over recent months about the role of speculators in pushing up the price of oil.

The Economist has a good piece on oil. In it, they highlight a key fact that has been overlooked by the feeble-minded: That oil speculators cannot push the price of oil futures above the price that markets are willing to pay for delivery just before expiry.

So for example, if the refinery is only willing to pay $100 per barrel, then that is what the final futures contract must be worth immediately prior to delivery. You then work backward by induction over the earlier contracts.

So if speculators are willing to push up the price of oil, it is only because the refineries are also willing to pay that much for physical delivery. Not the other away around.

A virtual chocolate fish to anyone who can point to a leading politician who actually has publicly acknowledged this.

Of course since when did logic mean an end to populist soundbites.

Diluting the liquor

According to Aunty Helen, there is a causative relation between alcohol outlet density and criminal behaviour.

Hmmm.

TVHE prodded that one with a stick and found it wanting.

This is policymaking by playing around with the edges for the sake of being seen to do something. Does reducing the number of liquor outlets mean there will be less crime? Forget about the stats - someone please tell me how it is meant to work. I really don't see the linkages.

On top of that, any first-year uni student who has done a stats course should be able to tell you that correlation is not causation. It staggers me that the pollies can stoop this low. Yes - it's de rigeur for Winnie What-me-baubles Peters - but for a PM to use that sort of flawed logic shows how desperate she must be to get the populist vote.

As soon as you start using (and accepting) this kind of shoddy reasoning, sensible policymaking goes out the window.

Let's get the election over with and try to get back some sanity... pleeeeease.